Citation: 2013 TCC 293
Date: 20130919
Docket: 2013-705(IT)G
BETWEEN:
PAUL C. GOLINI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
C. Miller J.
[1]
The Respondent has
brought a Motion for an Order pursuant to section 53 of the Tax Court of
Canada Rules (General Procedure) to strike out paragraphs 50, 51, 52, 53,
55(a) and 57 through 64 of the Amended Notice of Appeal (the "impugned
paragraphs") attached as Appendix A to these Reasons, on the basis they
disclose no reasonable grounds for appeal, contain allegations that are
immaterial, frivolous or vexatious and are likely to prejudice or delay the
fair hearing of this appeal. The Appellant counters that there is a triable
issue raised by the impugned paragraphs, being the validity of the reassessment
in issue, and that it is premature to assess the chance of success of that
issue and would therefore be inappropriate to strike the impugned paragraphs.
[2]
Some procedural history
is required to grasp the import of the Parties’ respective positions. This is
taken from the Parties’ own written submissions:
Appellant’s
Written Submissions
…
5. The Minister of National Revenue (the
"Minister") initially assessed the appellant’s tax liability for the
2008 taxation year on September 8, 2009.
6. In June 2012, the appellant was informed that his
personal income tax return for the 2008 taxation year had been selected for
audit.
…
Factum of the Respondent
…
7. In June 2012, the appellant was informed that his 2008
income tax return had been selected for audit, and shortly thereafter the CRA
requested from the appellant a waiver of the normal assessment period
applicable for 2008. No waiver was provided.
…
Appellant’s
Written Submissions
…
7. The appellant thereafter collaborated with the Canada
Revenue Agency ("CRA") in order to provide the information requested
in the initial contact letter.
…
Factum of the Respondent
…
10. On
August 16, 2012 the CRA proposed to reassess the appellant's tax liability for
2008 by adding to his income $6 million, denying his claimed interest expense
of $438,626, and imposing a penalty pursuant to subsection 163(2) of the Income
Tax Act. The CRA again requested that the appellant provide a waiver of the
normal assessment period applicable for 2008.
11. The
appellant requested more information from the CRA in respect of the proposed reassessment
and, by letter dated August 24, 2012, the CRA advised the appellant that:
(a) the $6 million loan was a
shareholder benefit or an indirect payment for the benefit of the appellant
resulting in an income inclusion under subsections 15(1) and 56(2) of the Act;
(b) interest deductions were being denied as
no amount of interest was paid or payable in the year; and
(c) the CRA considered the $6
million loan to be a sham.
12. The appellant then made
further representations to the CRA, which issued a third proposal letter in
response dated August 31, 2012 in which it maintained denying the interest deduction
and proposed that the $6 million income inclusion would be made pursuant
to subsection 84(1) ‑ i.e. a deemed dividend when there is an
increase in paid up capital of a company without a corresponding change in its
assets or liabilities — as the loan to the appellant from Metropac was not
real.
…
Appellant’s
Written Submissions
…
8. The
normal assessment period for the appellant’s 2008 taxation year ended on September
8, 2012.
9. By
notice of reassessment dated September 7, 2012 (the "Reassessment"),
the Minister reassessed the appellant’s tax liability by adding a taxable
dividend in the amount of $7,500,000 and by denying interest expenses in the
amount of $438,626 in computing his taxation income for the 2008 taxation year.
10. In
early November 2012, the appellant received, by regular mail, the Reassessment.
…
Factum of the Respondent
…
15. The
appellant objected to the 2008 reassessment by notification dated November 13,
2012. Following the service of his objection, the appellant asked for
information supporting the reassessment and was informed that the reassessment
was a "protective reassessment" and that the audit is ongoing.
16. The
appellant, having waited until 90 days had elapsed after service of the
notification of objection, appealed to this Court on February 25, 2013.
…
Appellant’s
Written Submissions
…
14.
On January 25, 2013,
the appellant requested, by way of application under the Privacy Act ("PA"),
all documentation in possession of the CRA relating to the appellant's 2008
taxation year and specifically the audit report.
15.
By way of letter
dated January 31, 2013, the CRA confirmed that the appellant's 2008 tax return
was under review by the Audit Division of the CRA and that information and
documentation supporting the Reassessment would be provided upon completion of
the CRA's review of the appellant's 2008 tax return.
16.
On February 25,
2013, the appellant filed his notice of appeal with this Court.
17.
By way of letter
dated March 12, 2013, the CRA responded to the appellant's PA request. The
letter outlined the CRA's refusal to provide the audit report or any other
documentation supporting the Reassessment on the basis that the disclosure
could reasonably be expected to be injurious to the enforcement of any law of Canada or to the conduct of lawful investigations.
…
[3]
Part of this history is
also set out in the Appellant’s Amended Notice of Appeal: Paragraphs 35 to 45
of the Amended Notice of Appeal are attached as Appendix B to these Reasons.
[4]
It is unnecessary to go
into great detail regarding the substance of the issue with respect to the correctness
of the assessment, other than to indicate that it revolves around a
reorganization in 2008 by the Appellant of his corporate holdings.
[5]
It is clear from a
review of the impugned paragraphs that the Appellant also wishes to challenge
the validity of the Minister of the National Revenue’s (the
"Minister") protective assessment. The Appellant’s position is that
the Minister has issued the protective assessment solely to allow time to
proceed with an audit, and that this is not in accordance with correct procedure
as established by caselaw (the Appellant refers to Imperial Oil v H.M.Q., Canada
v Loewen,
126633 Canada Ltée v The Queen,
and Satin Finish Hardwood Flooring (Ontario) Ltd., v Canada).
According to the Appellant, the Minister is trying to do indirectly what cannot
be done directly, rendering the assessment invalid.
[6]
The Respondent argues
that the decision of the Federal Court of Appeal in Karda v H.M.Q. is a
complete bar to the Appellant’s position, and, even if not, the Respondent
relies on the cases of Western Minerals Ltd v M.N.R., Anchor
Pointe Energy Ltd. v Canada,
Imperial Oil and Loewen to the effect that there has been no
procedural failure justifying invalidating the assessment.
[7]
For the impugned
paragraphs to be struck, it must be plain and obvious that reliance on them
discloses no reasonable cause of action: in effect, pleading these provisions
is an exercise in futility.
[8]
It will be helpful to
review the caselaw provided by counsel to determine what exactly is the law on challenging
the validity of an assessment, as opposed to the correctness of an assessment.
I will then consider whether indeed there is any prospect of success by the
Appellant. A good starting point is the recent decision of the Federal Court of
Appeal in Ereiser v Canada,
in which the court stated:
21. Mr.
Ereiser is seeking from the Tax Court of Canada an order vacating the
reassessments under appeal. That is the appropriate remedy in an income tax
appeal for an assessment (including a reassessment) that is found not to be
valid, or that is found not to be correct. I use the term valid to
describe an assessment made in compliance with the procedural provisions of
the Income Tax Act, and correct to describe an
assessment in which the amount of tax assessed is based on the applicable
provisions of the Income Tax Act, correctly interpreted and applied
to the relevant facts.
22. The
procedural provisions of the Income Tax Act include those
relating to statutory limitation periods. Generally, those provisions deprive
the Minister of the legal authority to assess tax after the expiry of a certain
period of time – the period defined in the Income Tax Act as
the “normal reassessment period” – unless a statutory exception applies.
…
27. To understand the
role of the Tax Court of Canada in income tax appeals, it is useful to begin
with subsection 152(8) of the Income Tax Act, which sets out the
legal effect of an assessment. It reads as follows:
|
152. (8) An assessment
shall, subject to being varied or vacated on an objection or appeal under
this Part and subject to a reassessment, be deemed to be valid and binding
notwithstanding any error, defect or omission in the assessment or in any
proceeding under this Act relating thereto.
|
152. (8) Sous
réserve des modifications qui peuvent y être apportées ou de son annulation
lors d’une opposition ou d’un appel fait en vertu de la présente partie et
sous réserve d’une nouvelle cotisation, une cotisation est réputée être
valide et exécutoire malgré toute erreur, tout vice de forme ou toute
omission dans cette cotisation ou dans toute procédure s’y rattachant en
vertu de la présente loi.
|
…
31. Based
on these provisions, this Court has held that the role of the Tax Court of
Canada in an appeal of an income tax assessment is to determine the validity
and correctness of the assessment based on the relevant provisions of the Income
Tax Act and the facts giving rise to the taxpayer’s statutory
liability. Logically, the conduct of a tax official who authorizes an
assessment is not relevant to the determination of that statutory liability. It
is axiomatic that the wrongful conduct by an income tax official is not
relevant to the determination of the validity or correctness of an assessment.
This is explained in Roitman (cited above) at paragraph 21:
21.
It is also settled law that the
Tax Court of Canada does not have jurisdiction to set aside an assessment on
the basis of abuse of process or abuse of power (see Main Rehabilitation Co.
Ltd. v. The Queen, [2004] F.C.J. No. 2030, 2004 FCA 403, at
paragraph 6; Obonsawin v. The Queen, 2004 G.T.C. 131(T.C.C.); Burrows
v. Canada, [2005] T.C.J. No. 614, 2005 TCC 761;Hardtke
v. Canada, [2005] T.C.J. No. 188, 2005 TCC 263)
[9]
The Federal Court of Appeal has
drawn an appropriate distinction between the validity of an assessment and the
correctness of an assessment. This Court has jurisdiction to deal with both. It
is also clear that any wrongful conduct by a Canada Revenue Agency
("CRA") officer has no bearing on the validity of the assessment. The
Appellant’s argument does not rely on any wrongful conduct of a CRA officer in
this case, but simply that the issuing of the protective assessment was not
carried out in the manner required by the law.
[10]
I turn next to the case of Karda,
a case that I decided in 2005. It is worth repeating some of what I had to say
in that decision, as there are some strong similarities between Mr. Karda’s
case and Mr. Golini’s.
25. The Appellant argues that the only
reason the June 2, 2000 reassessment was issued was because Mr. Karda would not
provide a waiver, effectively saying to the taxpayer if you do not provide a
waiver, the Government will deprive you of the benefit of the three-year
limitation period. This, according to the Appellant, is not a reassessment as a
reassessment is a process only finalized upon issuance of the notice. There is
no process where the Minister does not even identify an error in the prior
reassessment. A reassessment denying all the Appellant's claims simply to meet
the limitation period is not a valid reassessment. With respect, I disagree.
…
26. President Thorson in Provincial
Paper, Limited v. M.N.R. [10] stated:
... It is, therefore, idle to attempt to define what the
Minister must do to make a proper assessment. It is exclusively for him to
decide how he should, in any given case, ascertain and fix the liability of the
taxpayer. The extent of the investigation that he should make, if any, is for
him to decide. Of necessity it will not be the same in all cases.
But the basic fallacy in the contention lies in the
assumption that the Minister is precluded from ascertaining and fixing a
taxpayer's liability on the basis of the assumed correctness of his income tax
return but must do something else and that if he does not do so he has not made
an assessment. While the Minister is not bound by the taxpayer's return, as was
emphasized in the Dezura case (supra), there is nothing
in the Act to prevent him from accepting it as correct and fixing the
taxpayer's liability accordingly. In Davidson
v. The King, (1945) Ex. C.R. 160 at 170, I made the statement that the
taxpayer's own return of his income, while not binding upon the Minister, may
be the basis of the assessment made by him and I pointed out that it was
reasonable that this should be so, since the taxpayer knew better than anyone
else what his income was.
The Minister may, therefore, properly decide to accept a
taxpayer's income tax return as a correct statement of his taxable income and
merely check the computations of tax in it and without any further examination
or investigation fix his tax liability accordingly. If he does so it cannot be
said that he has not made an assessment.
While these comments apply to an assessment, as opposed to
a reassessment, I believe the principle can be applied to the reassessment; and
that is, that the Minister must do something, albeit that something may be
minimal. Mr. Fitzsimmons, for the Appellant, puts it that the Minister at the
stage of a reassessment must identify an error, otherwise there has not been a
valid process of reassessment.
28. What did the
Minister do within the period from March to June 2000? The Minister reviewed
the file, determined further information was required, requested such
information, and having not received it requested a waiver, which request was
refused. The Minister then issued the Notice of Reassessment. CCRA's effort
goes well beyond a cursory review. To nullify a reassessment on the basis the
Minister did not identify an error in a prior reassessment under such
circumstances, where the Minister has not received additional information
requested from the taxpayer, would severely handcuff the Minister.
29. The Minister has
three years to assess a taxpayer (longer if the conditions in paragraph 152(4)(a)are
met). In most circumstances this should be sufficient time to render a valid
assessment or reassessment. And, the taxpayer should have some certainty that
after that three-year period, barring misrepresentation, the Government cannot
review the taxpayer's tax situation. Yet, there are going to be circumstances
where more time is required - the taxpayer and the Government will both
recognize this and the taxpayer will obligingly provide a waiver of the
limitation. Where, as here, the taxpayer does not provide a waiver, the
Government has a choice. It can render what Mr. Fitzsimmons calls "a
protective reassessment", or it can gamble it can prove the taxpayer made
a misrepresentation and reassess after the limitation. In issuing the
reassessment on June 2, 2000, after a lengthy history of dealing with Mr. Karda, CCRA is
telling Mr.Karda
that it does not believe the prior
reassessment is accurate; indeed, there are errors, yet without more
information from Mr. Karda, the
Minister is unable to be more specific in disallowing all claims. I see nothing
so inappropriate in that approach as to render the reassessment invalid. There
was a review, a deliberation, and based on the information received, a Notice
of Reassessment was issued within the three-year period. It is a valid
reassessment.
[11]
In a brief decision of the Federal
Court of Appeal in Karda, the court stated:
2. The
appellant makes two submissions in support of his appeal. With regard to the
first one, we see no merit in his argument that the Notice of Reassessment of
June 2, 2000, is invalid because the purpose thereof was to prevent the expiry
of the three-year limitation. In our view, having requested additional
information from the appellant and not having received that information, and
having requested a waiver from the appellant which the appellant refused to
give, the Minister was clearly entitled to issue a reassessment to protect his
rights prior to the expiry of the three-year period. We therefore see no error
on the Judge’s part in finding that the reassessment was valid.
[12]
The Federal Court of Appeal is
clear there is nothing procedurally untoward in the Minister issuing a
protective assessment where there has been a request for information from the
Appellant, none is forthcoming and a subsequent request for a waiver has been
refused. I do not believe this necessarily dismisses my view at trial that
there must also be at least some review by the CRA and a deliberation. It is
this point that the Appellant suggests is unknown without further examination.
The Appellant argues that if the Minister did virtually nothing, but reassessed
simply anticipating the results of an audit, that had not been completed, then
the minimal review required has not been met and there has been a procedural
failure invalidating the assessment.
[13]
Before addressing this point in
relation to the facts as set out in the Amended Notice of Appeal, I shall
review some of the other cases referred to me.
[14]
In the Supreme Court of Canada
decision of Western Minerals, the Appellant contended the initial
assessment was a nullity because at the time it was issued, after a brief 15
minute review of the taxpayer’s return, it had been decided to conduct a
further examination of the return. The court ruled it was not for the court to
prescribe the necessary activity of a CRA exam for there to be a valid
assessment, and further, Justice Martland stated:
… I cannot agree
that that which would constitute a valid assessment if not accompanied by a
present intention to conduct a further examination is not a valid assessment if
that intention does exist. In my opinion there can be a valid assessment made
even though a further examination of the return is intended. …
[15]
The Appellant, however, relies on
the following comment from Former Chief Justice Bowman in the Satin
Finish case for the proposition that there must be some procedural
requirement for extensive review upon which to base assumptions:
The Minister of
National Revenue has, after all, assessed. His officials may be presumed to
have done their homework. They would have conducted the usual extensive
investigations prior to assessing, and heard representations from the taxpayer
or its representatives. At that stage the Minister would have formed the so
called "assumptions" upon which the assessment presumably is
premised.
With
respect, the Former Chief’s musings are not part of the ratio of that case and
go no further than an acknowledgment the Minister does some review.
[16]
In another case decided by Former
Chief Justice Bowman and upheld at the Federal Court of Appeal, Imperial Oil,
he concluded the Minister’s free to perform audits of a taxpayer during the
period in which an appeal is outstanding.
32. There
is no justification as a matter of common sense or as a matter of statutory
interpretation to say that an assessment to which one can object or from which
one can appeal must be an assessment based upon an audit by the Minister of
National Revenue or in which the Minister assesses in a manner that is
inconsistent with the way in which the taxpayer has filed. If Parliament wishes
to restrict the sort of assessment to which an objection can be filed or from
which an appeal can be taken it is perfectly capable of saying so. It is not
appropriate to read words into the statute in order to give it a strained
meaning that the plain words do not reasonably bear.
…
47. The
Attorney General of Canada can deal with the appeals at the same time as the
CCRA is proceeding with the audit. The existence of an outstanding appeal does
not curtail or limit in any way the Minister’s powers under the Income Tax
Act.
[17]
The Federal Court of Appeal, in
upholding Associate Chief Justice Bowman’s decision stated:
7. Third,
the Crown argues that permitting objections and appeals to a taxpayer’s own
filing diminishes the Minister’s capacity to conduct audits. There is not basis
for this argument. The Minister’s right to audit and to reassess within the
statutory limitation periods exists regardless of any ongoing objections and appeals.
Nor do we accept that the Minister could be prejudiced by a plea of res
judicata if an audit adjustment is made after the conclusion of the Tax Court
appeal on an issue that could not have been before the Tax Court. The
Minister’s right to reassess within the statutory time limitations cannot be so
limited. In addition, the res judicata principle offers built-in safeguards
whereby the rule will not apply when justice so requires in special
circumstances.
[18]
The Appellant suggests I should
read the Federal Court of Appeal’s comment as limiting the CRA to audit within
the statutory period for reassessing, therefore concluding that an assessment
that simply extends that time limit is invalid. I find the Federal Court of
Appeal’s statement does not go that far; it is not made in the context of the
situation before me, where there has been a refusal to provide a waiver, all parties
being well aware that further investigation is required.
[19]
The Appellant also took me to the
Federal Court of Appeal decision in Loewen where the court stated:
The basis of any
assessment is a matter of historical fact, and does not change. The basis of a
reassessment normally includes the facts relating to the increased taxable
income, as the Minister perceived those facts when the reassessment was made.
It also includes the manner in which the Minister applied the facts to the
relevant law when making the reassessment, and any conclusions of law that
guided the application of the facts to the law.
Again,
a comment from the court as to what normal procedure might be is not a
statement of what the law requires.
[20]
In the case of Anchor Pointe,
the Federal Court of Appeal dealt with the fine issue of where the onus lies in
the pleading of assumptions arising at the stage of the confirmation of a
reassessment. The Federal Court of Appeal did however say:
33. I agree with the motions Judge
that the appeal is not from the confirmation of the assessment. The appeal is,
to use the words of Hugessen J.A., from the product of that assessment: see
also Parsons, at page 814,
where Cattanach J. held that the “assessment by the Minister, which fixes the
quantum and tax liability, is that which is the subject of the appeal.” That
product refers to the amount of the tax owing as initially assessed or
determined, and subsequently confirmed. From the perspective of the process
itself, the assessment pursuant to sections 152 to 165 is not completed by the
Minister until, within the time allotted by the Act, the amount of the tax
owing is finally determined, whether by way of reconsideration, variation,
vacation or confirmation of the initial assessment: see Parsons v M.N.R., supra, at
page 814.
[21]
While acknowledging
"assessment" can mean both the process and the product, it is the
latter which was the subject of the appeal in that case. This addresses the
correctness of an assessment, but does not address the validity of an
assessment as it was not at issue before that court. The implication that the
assessment must be completed within the time allotted by the Act neither
precludes a protective assessment nor further examination by the CRA after such
assessment.
[22]
I find that the Federal Court of
Appeal’s conclusion in Karda that a protective assessment is valid where
there has been a request for information, none forthcoming and then a refusal
of a waiver request, is an acknowledgment that there will be situations, as I
indicated in Karda, where more time is necessary to investigate and
examine a taxpayer’s affairs, and if a protective assessment is necessary to do
so, then the assessment is valid. None of the cases to which I have been
referred draw any distinction between further examination being simply a
request for more information or a full blown audit. It does not make a
difference.
[23]
What I draw from these cases is
that, yes, there can be an issue with respect to the validity of an assessment.
There is no law, however, to the effect that a protective assessment is invalid
if issued for the sole purpose of leaving the door open to conduct or continue
an audit. I can find no precedent that this is a procedural unfairness that
overrides the clear statement in section 152(8) of the Act that:
An assessment shall,
subject to being varied or vacated on an objection or appeal under this Part
and subject to a reassessment, be deemed to be valid and binding
notwithstanding any error, defect or omission in the assessment or in any
proceeding under this Act relating thereto.
[24]
Indeed, the law, I find, is clear
that some review by the CRA followed by inquiries for more information and a
request for a waiver, subsequently refused, is sufficient for a protective
assessment to be a valid assessment. And that is exactly what we have here.
[25]
It is clear from the Amended
Notice of Appeal (paras 36 – 42) the CRA were not sitting idly waiting for the
last day to issue a reassessment. They were actively engaged with the
Appellant, providing explanations and seeking further information, and finally
requesting a waiver. The Appellant refused. There is no basis in law upon which
an assessment issued in those circumstances can be found invalid. The
Appellant’s case based on the impugned paragraphs is, I conclude, hopeless. The
test has therefore been met that such provisions should be struck and I do so.
Signed at Ottawa, Canada, this 19th day of September 2013.
"Campbell J. Miller"
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